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April 2013

Insurer Lacked Standing to Assert Subrogation Claims Under CERCLA

On March 15, the U.S. Court of Appeals for the 9th Circuit held that an insurer lacked standing to bring a subrogation suit under the Comprehensive Environmental Response, Compensation, and Liability Act because the insurer did not directly incur environmental response costs and did not allege that the insured was a “claimant” or that it had made a claim to the Superfund or to a potentially liable party, as required by the CERCLA statutes.

In Chubb Custom Insurance Co. v. Space Systems Loral, Inc., et al., insurer Chubb made insurance payments under an environmental insurance policy to its insured, Taube-Koret Campus for Jewish Life, for $2.4 million in cleanup costs Taube-Koret incurred in remediating soil and groundwater contamination on its property.

After paying the claim, on Sept. 23, 2009, Chubb filed an action for subrogation against several parties it contended were wholly or partly responsible for causing the pollution Taube-Koret had remediated. The complaint included CERCLA claims for cost recovery under §107(a), subrogation under §112(c), and supplemental state law claims including claims for contribution and indemnity. 

The district court dismissed Chubb’s complaint with leave to amend. Chubb subsequently filed two amended complaints, each of which was dismissed by the district court with leave to amend. 

Chubb filed a third amended complaint, renewing the CERCLA claims under §§107(a) and 112(c) and asserted subrogated state law claims for statutory indemnity, negligence per se and strict liability. The district court dismissed the third amended complaint with prejudice and entered judgment on behalf of the defendants. Chubb appealed.

In a divided opinion, the 9th Circuit affirmed the district court’s dismissal of Chubb’s suit. The majority agreed with the district court’s dismissal of Chubb’s subrogation claim under §112(c), which provides in part that “any person . . . who pays compensation pursuant to this chapter to any claimant for damages or costs resulting from a release of a hazardous substance shall be subrogated to all rights, claims and causes of action for such damages . . . that the claimant has under this chapter. . . .” Chubb had not alleged Taube-Koret was a “claimant” under the statute, defined as a person who demands compensation for damages or costs from the Superfund or a liable party resulting from a CERCLA violation. The 9th Circuit held that for Chubb to assert a §112(c) subrogation claim, Taube-Koret was first required to make a demand on the defendants or on the Superfund. The 9th Circuit noted that requiring the insured to pursue a claim before an insurer’s subrogation right vests was not unduly burdensome, and suggested that “[i]nsurance companies write their policies in a way to require reasonable cooperation from their insureds.”

The 9th Circuit also agreed that Chubb lacked standing to assert a claim under §107(a), which permits private parties to recover certain “costs of response” incurred in connection with the remediation of a polluted site. The majority held that an insurance payment is not within the meaning of “costs of response.” It further found that allowing a subrogation claim under §107(a) would render §112(c) a nullity, contrary to the rules of statutory interpretation.

Finally, the 9th Circuit found the state law claims were subject to California Code of Civil Procedure §338(b)’s three-year statute of limitations for injury to real property and were time-barred because Chubb filed suit more than three years after Taube-Koret discovered the contamination. The court rejected Chubb’s argument that the statute was triggered by its payment to Taube-Koret. Instead, the subrogee insurer stands in the shoes of the insured, such that the statute of limitations began to run when Taube-Koret knew or should have known of the contamination to its property. It also rejected Chubb’s argument that the running date of the statute of limitations depended on whether the injury was permanent or continuous.

The dissent found that the majority’s analysis did not honor Chubb’s equitable right to subrogation. The dissent opined that the majority’s reasoning was contrary to CERCLA’s intent to make polluters pay and warned that insurers would raise premiums to reflect the risk that an insurer will be unable to seek contribution from prior polluters and property owners. 

Click here for the opinion in Chubb Custom Insurance Co. v. Space Systems Loral, Inc., et al., (9th Cir. 2013) 2013 U.S. App. LEXIS 5198.

This opinion is not final. It may be modified on rehearing or review may be granted by the U.S. Supreme Court. These events would render the opinion unavailable for use as legal authority.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.

 

 

Insurance

Laura G. Ryan



Insurance

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